Saskatchewan thermal oil is hot, especially for Husky Energy—here​’s why

Saskatchewan thermal oil is hot, especially for Husky Energy—here’s why

By R.P. Stastny

Feb. 27, 2017, 7:40 a.m.


husky-thermal   Image: Husky Energy

Last week junior producer BlackPearl Resources announced it would proceed with a second thermal heavy oil project in Saskatchewan, shining a light on this quickly expanding side of the province’s industry.

SAGD projects in Saskatchewan conventional heavy oil have been on a rip since 2014, numbering 15, up from six two years ago.

Ten of these projects are operated by Husky Energy, which exited 2016 with net thermal production of 120,000 bbls/d. This represents more than a third of the company’s total production.

That production includes Lloyd thermal heavy oil projects as well as oilsands SAGD projects at Tucker in Cold Lake and Sunrise north of Fort McMurray.

Husky Energy is undergoing a structural transformation towards longer life projects that have lower operating costs and reduced sustaining capital requirements, Husky CEO Rob Peobody said in a Q4 2016 teleconference.

And Saskatchewan thermal oil plays a key role in that strategy.

“Last year, we sold 32,000 boe/d of legacy production in western Canada for $1.3 billion or $40,000 per flowing barrel. Those projects had an average operating cost of about $20 per barrel in 2015,” Peabody said.

“Over the same time, we brought on new thermal production that ramped up to 43,000 bbls/d at Lloyd and Tucker at a capital cost of $1 billion or $23,000 per flowing barrel. These projects have an average cost of about $10 CDN per flowing barrel.”

Saskatchewan SAGD offers low-cost production with higher netbacks compared to bitumen, Husky says.

Output from three Lloyd thermal projects at Edam East, Vawn and Edam West averaged 28,500 bbls/d in 2016. The projects, which began production in 2016, are currently producing more than 15 per cent above their combined design capacity of 24,500 bbls/d with an average steam-oil ratio of 2.2:1, Husky says.

And there’s more to on the way.

Construction continues on the company’s 10,000 bbl/d Rush Lake 2 Lloyd thermal project, with production on track for the first half of 2019.

Three new Husky Lloyd thermal developments with a combined design capacity of 30,000 bbls/d were also sanctioned in 2016. Subject to regulatory approval, first oil from Dee Valley, Spruce Lake North and Spruce Lake Central is expected in 2020.

“In the heavy oil segment alone, we’ve identified 18 new Lloyd thermal projects that together represent more than 150,000 bbls/d of potential development,” Peabody said.

“We now have more than $20 billion worth of projects that can generate a minimum 10 per cent return in the low $40 US WTI.”

Husky’s investment decisions are based on a minimum hurdle rate of 10 per cent IRR, with oil prices in the low $40s US WTI. These projects have to break even in the low $30s US WTI.

Mel Duvall, Husky’s media and issue manager, added in a phone interview that Husky has an exceptionally strong land position in the Lloyd area, knows how to build cookie type thermals in less than three years and that “there aren’t a lot of challenges” in continuing its heavy oil production growth.

“It’s more a matter of having the capital to roll these things out while maintaining our strong balance sheet,” he said.




About prosperitysaskatchewan

Consultant on Saskatchewan's natural resources.

Posted on February 27, 2017, in economic impact, oil, political. Bookmark the permalink. Leave a comment.

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